On August 8, President Donald J. Trump, signed the memorandum (the President’s Memorandum) directing the Secretary of Treasury to defer the withholding, deposit, and payment of the 6.2 percent payroll tax during the period of September 1, 2020 through December 31, 2020 for wages less than $4,000 during any bi-weekly pay period (i.e., $104,000 annually) on a pre-tax basis. The Department of the Treasury is expected to provide additional guidance later in August.
By way of an example, for an employee making $100,000 annually on a pre-tax basis, the employer may defer $2,066.67 over the four-month period or approximately $243 per each bi-weekly pay period.
Despite the Administration’s stated intent to make a permanent payroll tax cut or at least forgive the deferral of the four-month payroll tax holiday, without the Congressional legislation, the employers may still be liable for the deferred payroll taxes beginning January 2021.
If Congress does not enact a permanent payroll tax cut or at least the forgiveness of deferred payroll tax, employers ceasing payments of payroll tax are faced with the uncertainty of springing deferred payroll tax obligation on expiry of the four-month payroll tax holiday. For instance, if and when the four-month payroll tax holiday expires, it is uncertain whether employers may reduce employee paychecks for the amount of the deferred payroll tax.
Another uncertainty employers face on the expiry of the deferral payroll tax is the payment of payroll taxes in case of employee separation. Expected guidance from the Department of the Treasury may clarify issues stemming from the President’s Memorandum.
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This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.